Automakers race to secure lithium supply

Issue: The price of lithium has soared since auto manufacturers began to use the mineral in the production of their electric and hybrid cars

Shift: Develop a lithium deposit in Argentina to drive down the production cost of lithium-ion batteries

The race to control the lithium supply chain is in high gear as auto manufacturers ramp up the use of the mineral in their electric and hybrid vehicles.

Toyota Tsusho Corp., the sister company of Toyota Motor Corp., announced back in 2010 that it was forging a new joint venture to develop a lithium deposit in Argentina in partnership with Australia’s Orocobre Ltd. Under the terms of the deal, Toyota Tsusho would take a 25% stake in the project with the aim of making Toyota Motor its primary customer, spurred by the high cost of lithium-ion batteries used in its electric and hybrid vehicles.

It’s not that lithium deposits are scarce. In fact, the mineral is as common as lead or nickel worldwide.

But there are few commercially viable sources and even fewer players in the emerging market. Chile’s SQM, Chemetall, a division of Rockwood Holdings Inc., and FMC Corp. are the biggest producers of the mineral, which is principally mined in Chile, Argentina, Australia, and China at this point.

Partnerships, like the one struck by Toyota last year, are aimed at controlling the supply chain, introducing more players and increasing competition with the goal of lowering the price of lithium for those who expect sizeable demand in the future, said James Calaway, Orocobre chairman.

“The technology is moving so rapidly in the area of lithium-ion batteries,” he said in an interview. “The automobile industry is really taking this a lot more seriously than most people might think.”

He noted that while overall demand for lithium is increasing at an annual rate of 7%, demand for the mineral is increasing 35% annually for use in batteries. This is driven by automakers moving towards electrifying their vehicles to meet the increasingly rigid emissions standards set by governments around the globe.

Toyota, for example, plans to launch eight new hybrid models in the coming years with the goal of making this style of engine its primary powertrain in just a few years. It also plans to launch an all-electric and a plug-in hybrid vehicle by 2012 — all of which will use lithium-ion batteries.

Toyota is not alone. Major manufacturers around the globe are adapting the technology, including General Motors Corp., which launched its own electric vehicle, the Volt, in Canada earlier this year.

The Toyota deal follows another $10.5-million equity investment in December by Magna International Inc. and Mitsubishi Corp. in Toronto-based Lithium Americas Corp. to help develop another lithium deposit in Argentina.

Magna, Mitsubishi, and Toyota have all secured rights to purchase a percentage of the lithium produced at the sites under the terms of their deals.

Magna showcased its own lithium-ion battery in an all-electric Ford Focus at the North American International Auto Show in Detroit in 2010.

Ted Robertson, Magna’s chief technical officer, said the Aurora, Ont., parts maker has been in talks with manufacturers around the globe about the technology. But he acknowledged at $10,000 to $20,000 each, the price tag of the batteries remain an issue.

“Magna wants to be on the leading edge of any new technology, and so we jumped on this technology a few years ago,” he said. “The high-cost is the battery. So, working on the supply chain, getting the price down, and working on new composites for the battery are all things we are working on.”

Eric Zaunscherb, Canaccord Adams analyst, has a “speculative buy” on Canadian juniors Lithium One Inc., Western Lithium Corp., and Canada Lithium due to an expected increased demand for lithium spurred by the auto industry.

“With forecast 10% to 20% penetration rates by 2020 for pure and hybrid electric vehicles, we expect an incremental increase in demand of 286,000 tonnes of lithium carbonate equivalent, significantly outstripping current supply,” he said in a note to clients.